Greece struggles to save face over budget deficit
News that Greece's budget deficit is twice what was previously reported has left many EU officials stunned, but Greek experts say Brussels should have known all along.
When finance minister Giorgos Papakonstantinou reported that Greece's budget deficit would not amount to six percent this year, as the previous government had reported, but a whopping thirteen percent, most Greeks were not surprised in the least.
"Of course the six percent figure was totally unrealistic," said Gikas Hardouvelis.
Hardouvelis is a top economist employed by EFG Eurobank, one of Greece's largest banks. He is also sits on a commission advising the government on improved transparency in the financial sector. Hardouvelis disdainfully shrugged off the Greek statistical agency's official quarterly data. "They make these numbers up after they're done making up their annual reports," he said.
How does he, as a banker, do business under these conditions? What can he rely upon? "Intuition," said Hardouvelis.
Hiding an ugly truth
The economist suspects civil servants were ordered to hide the ugly financial truth from the European statistical agency Eurostat by their political patrons. Not much of a challenge, considering the government's financial administration is "seriously outdated." Schools and hospitals often have little more than a paper ledger. Equipment which has been purchased but not yet paid for remains off the books until a debtor starts raising hell.
"This accumulation of overdue payments reaches all the way up to the highest levels," Hardouvelis said.
Economic growth, falling interest rates and European subsidies made it easy to turn a blind eye to Greece's financial chaos for the last fifteen years. "But now reality has come knocking."
Some rating agencies have already lowered Greece's credit rating and others are considering doing the same. The Greek stock market has gone into a nose dive, losing six per cent on Tuesday. The Greek national debt currently amounts to 100 percent of GNP and it is expected to rise further.
The Greek government said it was shocked by the "negative attitude many foreigners exhibit regarding the Greek economy," an economy which is predicted to shrink by one percent this year.
Yannis Stournas, who leads an independent economic research department, feels the foreign indignation is mostly hypocritical. It would have been easy for outsiders to ascertain the 6 percent figure was incorrect a long time ago, he said. "Don't they read the Greek papers? We have an EU team here every month."
Creative accounting
It is easy to cast Greece in the role of patsy. The nation of 11 million has a small economy and a certain reputation. Every time a new government comes to power – the country generally alternates between the centre-left PASOK party and the more right-wing New Democracy party – it makes a big fuss of announcing its predecessor has left the country in a deplorable state.
When ND came to power in 2004 it changed government accounting rules retroactively to create some financial breathing room, and make the PASOK look bad. The move had such far-reaching effect that the new data showed Greece should never have been allowed to join the euro in the first place. The Greeks were said to have conned their way into the unified currency. The reputation stuck.
The Greeks are still considered to be less than truthful by some in Brussels. That reputation is "totally undeserved," according to Yannis Stournas. The statistician represented Greece in the negotiations leading up to the monetary union. Greece was "not more creative" than other countries were at bookkeeping during this process, he said.
"Brussels accepted the new accounting method at the time. They had been warned not to and should never have done so. This move proved Brussels' own lack of strict principles – it doesn't audit data sent in by governments properly. It accepts whatever it is presented with."
Tax evasion rampant
Inadequate data are not Greece's only problem. Tax evasion is rampant, totalling up to 10 percent of GNP according to some estimates. So is corruption. In a survey conducted by corruption-watchdog Transparency International, 18 per cent of Greeks confessed they or family members had paid a bribe in the last year. That's four percent more than Romania, which is infamous in this regard.
The bloated civil sector also weighs heavily on the Greek economy. Over 1.5 million Greeks are employed by the state, generally for life.
Responding to the criticism from abroad, prime minister George Papandreou, in a televised cabinet meeting on Wednesday, said: "We must close the credibility gap to survive as a sovereign and cohesive nation. We are determined to do whatever it takes to control the huge deficit."